It’s been a while since we provided Market Musings as Christmas & New Year’s slowed things down. We’ve had enough action this week to provide some thoughts on what we see going on.
• Positive News on the Economic Front. The economic releases this week have been largely positive. The only negative release was the NAHB Home Builders’ index which came in lower than expected (83 vs 86). The rest of the housing data released this week was positive – Housing Starts were higher than expected by 110,000 units; Building Permits were also higher than expected by 110,000 units; and, Existing Home Sales were higher than expected by 210,000 units. Weekly Jobless Claims declined this week versus an expected increase. Claims fell to 900k last week, but more importantly, last week’s number of 965k was revised lower to 926k. The Philly Fed Index surprised to the upside coming in at 26.5 for January versus a reading of 12 expected. The Index was at 9.1 in Dec, which is a considerable improvement month-over-month. Lastly, the preliminary January numbers for Markit Manufacturing and Market Services PMI indices were positive. Both measurements beat expectations and showed improvement for January over December’s readings. However, more importantly, the Markit report showed a considerable increase inflationary readings. According to the report, “The rate of input cost inflation was the fastest on record (since October 2009), as soaring transportation and PPE costs were also noted.” This kind of reading and the expected activity from consumers when pent-up demand is unleashed with re-openings has caused us to expect higher inflation this year – hence many of the moves that we made in our SEAM portfolios. Meanwhile, the National Financial Conditions Index continues to remain stable, as does the Wealth Protection Signal. Recent market activity today seems to be centered around concerns about the Virus. While that may be true on a global scale, as you’ll see below, the virus looks to have plateaued here in the U.S. Rather, we think the market has been focused on another round of stimulus, as promised by the Biden administration. Today, it was rumored that there has been no definitive power-sharing agreement reached in the Senate. This could complicate and lengthen the amount of time for the $1.3 trillion stimulus package to get approved, which is why equities are a little squirrely today.
• Good News On the Virus Front. Here in the U.S. daily cases are receding and hospitalizations are down. For the first time since September of 2020, the 7-day average for hospitalizations is on a steady decline and has dropped 9.4% since the peak on Jan 7th. Cases are only rising in 2 states/territories and falling in 47 states/territories. The Positive Rate on new COVID tests has dropped from 13.7% two weeks ago to 9.6% yesterday. These are very good developments that we will continue to monitor to see if it develops into long-term trends to the downside. Meanwhile, key areas like New York, Chicago, Baltimore are re-opening businesses to serve consumers. This is why we believe pent-up demand, when it is unleashed, could drive prices (inflation) higher this year (as already evidenced in the Markit report noted earlier). It’s clear with the amount of data we now have, that lockdowns did not “flatten the curve.” CA, which is still in lockdown, has an almost identical chart for Cases & Hospitalizations of FL, which has not been on lockdown since May of 2020. At the same time, vaccinations are continuing to progress as 38 million doses have been delivered to-date, with 17 million shots administered, and 2.4 million have been fully vaccinated (both shots). According to the FDA, two more COVID vaccines will be up for approval – one from J&J and one from Astrazeneca – within a few weeks. If approved, that would make 4 vaccines, which could also improve distribution to the public.